Japan's catastrophe

Catastrophic: that is the only word to describe the weekend's terrible earthquake and the consequent tsunami waves that battered Japan's northeast coast, snuffing out an estimated 10,000 lives and causing massive destruction. In many ways, calamities — natural and man-made — are not new to Japan and the Japanese. Whether it is earthquakes, tsunamis, volcanic eruptions or the man-made destruction at Hiroshima and Nagasaki, Japan has seen them all and, importantly, learnt to overcome such calamities with fortitude and resilience. Yet, even for such a resilient country, the destruction caused by the sad events of the past few days could prove quite a challenge to overcome. The calamity comes even as the country is struggling to emerge from two decades of stagnant growth and a deflationary economy. With a shrinking population in the working age the rebuilding process could also be that much slower than before. The developed countries need to commit resources for the recovery and reconstruction of the world's third largest economy, just as they did for Indonesia or Haiti.

The reaction in the markets is on predictable lines, with the Nikkei nosediving and commodity prices, from rubber in Kochi to uranium in Australia and crude oil in New York, falling sharply. Crude prices could, however, rebound quickly once the market realises that Japan will now have to depend that much more on oil and LNG for the rebuilding process. Plant shutdowns by such major companies as Sony, Toyota, Honda and Canon could dent manufacturing output growth just when things were beginning to look up. Though no red flags have been raised yet by the rating agencies, the extraordinarily high level of public debt (200 per cent of GDP), the effects of the stimulus funds released on Monday and the massive resources needed for rebuilding could cast a long shadow on the economy.

The problems Japan is now experiencing with the meltdown at the two reactors of its Fukushima nuclear power plant are bound to raise fresh questions on the safety and desirability of nuclear power, just as Chernobyl and the Three Mile Island accidents did. Interestingly, the stock price of Areva, one of the leading designers, developers and suppliers of nuclear power equipment, fell by 9 per cent in Paris on Monday, indicating market fears over prospects for the nuclear power industry. The mandarins in India's nuclear power establishment will, no doubt, be watching the developing situation in Japan closely. Questions are bound to be raised over the desirability of nuclear power, given that India has also been affected by earthquakes and a tsunami in the recent past. Indeed, a reappraisal could well be in order here, given the massive capacity addition programme planned in nuclear power.

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